After six months in office, has the Prayut Chan-o-cha government lived up to its promise to tackle the country's economic woes? The Business Post reviews the government's performance to date on its six priorities and rates them based on evaluations by our 10 panelists.
1. Tak reform
From day one of the coup, the military government has advocated reforms to create a fairer system of taxation.
The introduction of inheritance and gift taxes and a land and buildings tax is at the heart of the overall tax reform, which past governments failed to bring about.
Plans are afoot for across-the-board changes in how the tax base is calculated, spanning state-recommended retail prices, ex-factory prices and final wholesale prices.
The introduction of an inheritance tax, whose draft bill was endorsed on Tuesday, looks correct on paper, winning applause from the public for touching the untouchable.
But tax experts and some academics question whether the tax will achieve its said purpose: reducing the income gap and creating greater fairness in society. The high administrative cost and substantial manpower involved to bring the tax into practice could outweigh the amount of additional revenue.
Next in line is the land and buildings tax, aimed at improving land distribution and its use. This law would come into effect by 2016 after the assessment of all 32 million land plots nationwide.
The government got off to the right start by launching a five-pronged stimulus package, valued at 364.5 billion baht and designed as an immediate stopgap to reignite the stalled economic engine.
2. Stimulus package
The five stimulus measures, aimed boosting domestic consumption, are:
- Speeding up the disbursement of 147 billion baht left over from the fiscal 2014 budget.
- Expediting payment of 129 billion baht earmarked for the fiscal 2015 budget across all ministries by this December.
- Spending 23 billion baht on repair work and small projects related to education and public health.
- Accelerating payment of the outstanding 24.9 billion baht left unspent from fiscal 2005-13 budgets.
- Cash handouts totalling 40 billion baht to rice farmers nationwide.
Given that the stimulus package was only endorsed in early October, it is too soon to measure the effect. But complexities involved in carrying out the measures, marred by bureaucracy, have delayed the results.
A vivid example is the delay in cash handouts of 1,000 baht per rai to each farm household. The payments were expected to be completed by November but were put off to December.
The delay is due to a tightened process to verify whether those who registered for the cash giveaway are real rice growers after the prime minister raised concerns about potential corruption.
The state-owned Bank for Agriculture and Agricultural Cooperatives (BAAC), which handles the process, has so far paid only 10% of the more than 3.4 million farmer households, well below the 30% target.
The Finance Ministry says the impact of the stimulus measures will be felt only next year. Due to this the Fiscal Policy Office cut its GDP growth forecast for 2014 to 1.4% in October from 2% in July.
3. Infrastructure
The infrastructure development plan spearheaded by the military government does not represent a major shift in policy from its predecessor, reflecting the need to overhaul the national transport system.
The proposals have a lot in common with those showcased by the ousted Pheu Thai-led administration.
The key differences lie in the way the schemes were revised to take into account economic viability, rather than the previous surreal blueprints, and funding alternatives instead of relying solely on government borrowing.
The plan under review by the unelected lawmakers is to include private investment and public fund-raising, augmented by the state coffers and loans.
The infrastructure plan as outlined by the National Council for Peace and Order (NCPO) in July centres on five targets between 2015 and 2022. They include:
- Revamping the provincial rail network.
- Improving public transport systems to ease traffic congestion in Bangkok.
- Expanding the capacity of highways to connect production bases in rural areas with neighbouring countries.
- Improving the efficiency of waterways and air transport.
The development time frame has been extended to eight years instead of seven as envisioned by the past government.
Perhaps the most dramatic change is the switch from high-speed rail to dual-track service, with new 1.435-metre standard gauge tracks suitable for trains running at 160-180 km/hour on three routes, a move that was advocated by experts but ignored by the Yingluck Shinawatra government.
Under the NCPO’s plan, five dual-track railways will be built on the same routes planned by the previous regime.
On Tuesday, the cabinet agreed to let China play a lead role in developing the standard gauge railway, stretching 867 km from Nong Khai in the Northeast to Map Ta Phut, Rayong on the Eastern Seaboard.
4. Digital economy
A new policy driver put forth by the Prayut government, the digital economy has been hailed as a game-changing approach with strong potential to spur national growth.
The private sector in particular sees an economy based on digital technologies as enhancing the country’s competitive edge in the global market.
The digital economy encompasses every aspect of modern life, from entertainment and health to education and banking.
The government has mapped out a draft action plan for the digital economy in which Thailand’s GDP per capita would more than triple to US$7,000 in the next few years and lift the country out of the middle-income trap.
Set for launch in January 2015, the initiative will involve constitutional amendments and changes to five acts and four royal decrees.
The government plans to set up a Digital Economy Ministry by consolidating existing departments whose operations are relevant to the subject.
But academics and business leaders have cautioned the success of the digital economy should go beyond the scope of solving technical problems and cover legal processes as well. The keys to success are:
- Cultivating a trusted environment for technology-enabled innovation to thrive.
- Striking a balance to stimulate innovation and business growth while protecting the rights of the individual, intellectual property and privacy.
- Actively addressing cyber vulnerability and the threat of attack or misuse.
- Cultivating a fully digitally literate society so that citizens are able to use information and technology to take advantage of the growing economy.
Most believe the digital economy’s best hope is for the private and public sectors to unite around a goal of driving real effectiveness that can be accurately measured. Large companies in the main are not keen on risky new development and may have doubts about the feasibility, reliability and marketability of potential technology.
5. Energy reform
The government’s energy policies are focused on restructuring prices to reflect actual costs, creating parity among all types of fuel users and cutting the huge burden of longtime subsidies. Experts have estimated total subsidies of 920 billion baht from 2008 to July this year.
The decade-long subsidies for diesel, cooking gas and compressed natural gas (CNG) used by past governments to gain votes caused distortions in supply and demand.
In cooking gas, for example, Thailand has turned from a net exporter to a net importer because motorists have modified engines to be compatible with liquefied petroleum gas (LPG) and thus enjoy cheap fuel at the expense of gasohol users who pay higher tax to subsidise LPG users.
Also, since the retail price of LPG is far lower than the global cost, smugglers have profited from selling cheap LPG to neighbouring countries where retail prices are higher than in Thailand.
The government moved quickly to restore balance to fuel prices.
- In August, the Energy Ministry cut levy collection and excise tax on various types of petrol in a range of 1.10 baht to 3.89 baht per litre.
- A week later, the excise tax on diesel was raised to 0.75 baht after being taxed at 0.005 baht since Abhisit Vejjajiva’s government. The normal excise tax on diesel was 5.37 baht per litre.
- A levy collected on diesel was increased by three baht.
- The price of LPG for the transport sector rose to 22.63 baht a kilogramme and CNG prices rose to 9.50 baht a kg from 8.50 baht after being capped since the industry began in the country.
- The government plans to float LPG and CNG prices to reflect actual costs.
Most business leaders and academics agree with the energy policies, reasoning that subsidies are costly compared with their benefits. But some economists question if the time is right to raise energy prices as the economy struggles.
This could be why the government recently decided to put off the price float of LPG and CNG until next year, consistent with its goal of easing people’s burden during hard times.
6. Rice pleading
Ending the rice pledging scheme, a signature populist policy of the previous elected government that amassed more than 900 billion baht in losses, was the boldest move taken by the military regime days after the May 22 coup.
The Prayut government has replaced the disastrous corruption-prone scheme with measures that cost taxpayers less while promoting sustainable growth for Thailand’s key rice sector in the long run.
Clearly most farmers are unhappy with the change, as they had enjoyed artificially high prices under the scheme. But its termination was hailed by most of the public and economists who feared that extension of the scheme could bankrupt the country.
Some 985 billion baht over the past three years went to fund the scheme, coinciding with Thailand losing its status as the world’s top rice exporter.
In October, the government and the BAAC came up with a new scheme costing 127 billion baht through extension of a wide range of supports such as:
- Using 89 billion baht to lower the cost of farm essentials by 432 baht per rai for 3.57 million farmers. Farmers with a good financial track record can get loans at the minimum lending rate minus three percentage points for borrowing not exceeding 50,000 baht over six months.
- Setting aside 17.28 billion baht for measures to delay fresh rice from the North and Northeast entering the market. Farmers can get loans worth 80% of their rice crop value and store rice for sale later when prices are better. The loans are capped at 300,000 baht a person.
- Financing 500 farm cooperatives so they can buy 3 million tonnes of paddy rice and process it for higher value.
The government terms these “temporary” measures to tackle long-standing problems that have plagued Thai farmers. More sustainable solutions like farm zoning and plantation restrictions in certain areas are on the government’s roadmap.